While Republicans argue that it protects working families and promotes growth, economists fear that United States President Donald Trump’s flagship controversial tax bill could further erode investor confidence, trigger higher borrowing costs, rekindle inflation concerns and further cripple an already debt-riddled economy.
Dubbed the "One Big Beautiful Bill Act” Trump’s proposed 1,000-page overhaul of tax and welfare policy remains in limbo, after struggling to garner support in the House of Representatives.
Current delays raise doubts over whether Trump will see the bill finally passed before Memorial Day – 26 May – as planned.
The bill is struggling to reach broad support from hardline conservatives and moderates after a Congressional Budget Office (CBO) report suggested the bill would balloon the deficit by US$3.8 trillion over the next decade and cut household resources for the poorest Americans by up to 4%.
The CBO’s preliminary analysis also heightened market jitters, with the 30-year Treasury yield spiking to its highest level since October 2023 at 5.08%, while the 10-year yield rose to 4.59%.
While Speaker Mike Johnson had hoped for a Wednesday floor vote, House Republicans descended into an internal deadlock after a marathon 1 am Rules Committee session couldn’t reach an agreement.
What the CBO revealed
According to the CBO’s numbers, the tax components alone would reduce federal revenue by US$3.8 trillion.
While cuts to Medicaid, food stamps, and other services would recoup only US$1 trillion, once smaller offsets are taken into account, the net impact is expected to increase the deficit by over US$2.7 trillion.
Equally concerning, the CBO’s analysis suggests more than 8.6 million Americans would lose health coverage under the bill, while around 3 million would lose access to food stamps.
Then there are additional automatic cuts to Medicare — triggered under statutory PAYGO rules — which by some estimates could amount to nearly US$500 billion if Congress doesn’t intervene.
Bill specifics
While the legislation would make Trump’s 2017 tax cuts permanent, new provisions include plans to offset lost revenue by slashing spending on safety net programs, imposing work requirements on Medicaid and SNAP recipients, and rolling back green energy tax credits.
The proposed bill also includes US$350 billion in new spending — US$150 billion for defence and a new “Golden Dome” missile shield, and the remainder for immigration enforcement and border security.
Other additional new provisions include:
• Elimination of federal income tax on tips, overtime pay, and some Social Security benefits.
• A higher standard deduction (US$32,000 for joint filers).
• A boosted child tax credit (US$2,500).
• A new US$4,000 deduction for certain older adults.
• Temporary car loan interest deductions for US-made vehicles.
Fiscal fallout
The CBO’s distributional analysis shows a sharp tilt in benefits toward higher-income households:
- Top decile (top 10%): Household resources rise by 4% in 2027 and 2% in 2033, mainly due to tax cuts.
- Bottom decile: Resources fall by 2% in 2027 and 4% by 2033, driven by cuts to Medicaid and SNAP.
“This is what Republicans are fighting for — lining the pockets of their billionaire donors while children go hungry,” said the Republican. Brendan Boyle, the ranking Democrat on the Budget Committee.
Meanwhile, House leaders firmly believe the bill is a non-negotiable priority.
Speaking at the White House on Wednesday Trump said he felt “very well” about its chances and warned Republicans not to “f— around with Medicaid.”
What happens next
Assuming the bill finally clears the House, Senate passage still remains far from being a done deal.
Several Republican (aka GOP) senators have vocalised concern over the size and scope of the legislation, which means it may need to be broken up or significantly amended.
Secondary effects aside, the Committee for a Responsible Federal Budget estimates that the bill will add at least US$3.3 trillion to the U.S. debt.
Unsurprisingly, the IMF has also urged the U.S. to curb its “ever-increasing” debt burden, warning that current proposals risk further erosion of its fiscal credibility.
Meanwhile, Bridgewater founder Ray Dalio warned that the downgrade risk extends beyond credit ratings:
“They don’t include the greater risk that countries in debt will print money to pay their debts,” he said.